As Kriss wrote yesterday, the June forecast for revenues to funds subject to the outlook (NGFO) is down $476.7 million in 2023–25 and $189.0 million in 2025–27 compared to the February forecast. Reduced estimates of capital gains tax revenues are a major factor.

For FY 2023, the state collected $847.5 million in capital gains taxes. Of that, $500.0 million went to the education legacy trust account (ELTA), which is part of the NGFO, and $347.5 million went to the common school construction account (CSCA), which is not part of the NGFO. (If capital gains revenues exceed $500 million in a year, the excess amount goes to the CSCA.) The amount collected for FY 2024 (which ends on Sunday) is an estimated $371 million (net of refunds from the prior fiscal year), all of which will go to the ELTA.

The Economic and Revenue Forecast Council (ERFC) expects future capital gains revenues to remain around the lower 2024 level going forward. This means that throughout the forecast period, no capital gains revenues are expected to be deposited in the CSCA. Compared to the February 2024 forecast, the June forecast reduces the estimate for total capital gains revenues (to the ELTA and CSCA) by $769.0 million in 2023–25 and by $972.0 million in 2025–27. The impact to the NGFO is a decrease of $324.1 million in 2023–25 and $290.0 million in 2025–27 (compared to February).

The chart shows actual capital gains collections for FY 2023 and FY 2024 (the FY 2024 figure is not final) along with the February and June 2024 forecasts and the revenue estimate from the 2021 fiscal note for the capital gains bill.

Note that this is a new tax for Washington and that capital gains taxes are inherently volatile. It’s too soon to know what the long-term collections trend will look like. Further, voters could repeal the capital gains tax in November. Because I-2109 is an initiative to the Legislature, a fiscal note was prepared earlier this year based on the Feb. 2024 revenue forecast. With the June forecast, the fiscal impact statement for I-2109 (which will be included in the voters’ pamphlet) will estimate smaller revenue losses from repealing the capital gains tax.